State Constr. Corp. v. Slone Assocs., Inc.
385 F. Supp. 3d 449
D. Maryland2019Background
- Plaintiff State Construction performed underground utility work on a federally funded Fort Meade project under a subcontract with Two Rivers; a Joint Check Agreement labeled State Construction a "third-tier" subcontractor and C & S Aircraft a "first-tier" subcontractor.
- Slone Associates was the prime contractor and furnished the Miller Act payment bond; C & S and Two Rivers occupied intermediate contractual positions (C & S subcontracted to Slone; Two Rivers to C & S).
- State Construction alleges delays caused by Slone/Two Rivers; in April 2016 it contends it reached an implied-in-fact agreement with Slone under which Slone would cover delay-related additional costs so State would keep crews/equipment on site.
- State Construction claims Slone resumed interim payments but later withheld payment; it seeks (1) breach of implied-in-fact contract (Slone), (2) quantum meruit/unjust enrichment (Slone & Two Rivers), (3) Miller Act bond recovery (U.S. Specialty), and (4) fraud (Slone, Two Rivers; fraud claim vs. C & S later dismissed).
- Defendants moved to dismiss for lack of subject-matter jurisdiction (Miller Act standing) and for failure to state claims; the court treated the jurisdictional challenge as facial and assumed the complaint's allegations true for 12(b)(1).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Miller Act standing — can State be treated as second-tier (pierce sham subcontract)? | The Slone–C & S subcontract was a sham; C & S was a nominal conduit so State should be treated as second-tier and entitled to §3133(b)(2) relief. | Formal contract labels control under J. W. Bateson and Fourth Circuit precedent; courts should not reclassify subcontractors absent corporate-form disregard under ordinary corporate-law principles. | Court rejects sham-reclassification; State remains third-tier per written agreements and cannot recover as second-tier. |
| Miller Act standing — alternative: did an implied-in-fact contract with Slone make State a first-tier subcontractor? | State alleges an April 1, 2016 implied-in-fact agreement with Slone making Slone responsible for delay costs, which would give State a direct contractual relationship with the prime (Miller Act §3133(b)(1)). | Defendants: allegations are conclusory (no concrete conversations, no consideration) and therefore jurisdictionally insufficient. | Court finds allegations non-frivolous and colorable for §1331 jurisdiction; implied-in-fact contract claim survives 12(b)(1) and 12(b)(6) at pleading stage. |
| Breach of implied-in-fact contract (merits) | Parties had mutual assent (named executives, context of delays) and new consideration (State kept crews on site beyond original schedule); Slone resumed payments then stopped. | Defendants contend agreement duplicates preexisting obligations to Two Rivers and lacks consideration or concrete mutual assent. | Court holds plaintiff pleaded facts plausibly supporting mutual assent and consideration; Count II survives 12(b)(6). |
| Fraud pleading and scope (against Slone, C & S) | State alleges Slone misrepresented that C & S would perform as first-tier subcontractor to induce State to take lesser Miller Act protection; reliance caused injury. | Defendants argue statements may not be false, lack intent to defraud, and fraud not pleaded with Rule 9(b) particularity; C & S had no involvement in negotiations. | Fraud claim survives as to Slone and Two Rivers but plaintiff must amend to specify where and whether statements were oral/written; fraud against C & S dismissed and C & S dropped. |
Key Cases Cited
- J. W. Bateson Co. v. United States ex rel. Bd. of Trustees of Nat'l Automatic Sprinkler Indus. Pension Fund, 434 U.S. 586 (Supreme Court) (Miller Act restricts "subcontractor" to one who contracts with the prime; rejects functional test).
- United States ex rel. Global Building Supply, Inc. v. WNH Ltd. P'ship, 995 F.2d 515 (4th Cir. 1993) (favor formal contractual labels over functional tests; corporate form not disregarded absent ordinary veil-piercing principles).
- Glens Falls Ins. Co. v. Newton Lumber & Mfg. Co., 388 F.2d 66 (10th Cir. 1967) (bench trial finding a subcontract was a sham based on substance over form).
- Continental Cas. Co. v. United States ex rel. Conroe Creosoting Co., 308 F.2d 846 (5th Cir. 1962) (jury verdict treating nominal subcontractor as sham/subterfuge).
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court) (pleading standards; conclusory allegations insufficient).